PACRA Maintains Entity and TFCs Ratings of Bank Alfalah Limited

Lahore, December 29, 2017 (PPI-OT):The ratings reflect relative positioning of the bank among large banks of the country. The bank has a stronger position in advances – sustained by fresh deployments. The deposit system share has witnessed dilution as the bank embarked upon a strategy to sustainably rationalize its cost of funding with enduring focus on low cost deposits. Resultantly, BAFL’s cost of fund is comparable to some of the large banks. The bank enjoys extended outreach across the country which has augmented its deposit base. Operating cost structure, though still higher than peers, has improved on YoY basis on account of cost rationalization. The asset quality of the bank has sustained over the past three years on account of prudent risk management.

The bank witnessed changes in the key management positions. Cohesion and effectiveness of the new team is essential for the sustained growth of the bank. Declining asset yield is being offset by cost efficiency hence, enabling spreads to be maintained at current levels. Despite consistent improvement in the bank’s profitability, capital augmentation remained limited. Cognizant of the fact, the management intends to improve its Tier-I capital through multiple options, whereas, enhancing Tier-II capital through issue of a new instrument is also being considered, thereby creating cushion to regulatory capital. The bank is in the final stages of issuing Tier I instrument to replenish its capital adequacy. The ratings recognize demonstrated support of Abu Dhabi group (ADG) as a key factor.

The ratings are dependent on the management’s ability to uphold its business profile; effective implementation of strategy is important. Sustaining spreads at current levels is a challenge, which needs to be effectively managed. Strengthening of the bank’s capitalization and adding granularity to its advances and deposits book are critical for ratings improvement.